Die Meinung

The Road Less Travelled

Only a handfull of European companies have been involved in China's Belt and Road Initiative – mainly in niche roles. As China scales up in other markets, the EU and its member states must act to create a level playing field.

Jörg Wuttke
Drucken
Teilen

Deutsche Version

China’s Belt and Road Initiative (BRI) is in many ways business as usual for European companies in China. Much like doing business within China, the structure of the initiative means that foreign participation in the BRI is limited and selective.

Jörg Wuttke

Jörg Wuttke is the Chief Representative of a large German Dax company in China. He is also the President of the European Union Chamber of Commerce in China. He has lived and worked in the People's Republic for more than thirty years.
Jörg Wuttke is the Chief Representative of a large German Dax company in China. He is also the President of the European Union Chamber of Commerce in China. He has lived and worked in the People's Republic for more than thirty years.

Only a handful of European businesses have been involved in BRI-related projects, and for the most part they have only been able to pick up crumbs of the pie by filling niche roles that Chinese providers cannot.

BRI-related projects rarely have open procurement and tendering. The paltry few European companies involved have almost exclusively been pulled in by an established Chinese business partner, the Chinese government, or the local government. They generally are brought in to provide a certain technology, or because of their deep experience working in recipient countries and China alike, which allows them to play a facilitating role.

The rest of these projects tends to go to vertically integrated Chinese companies so that materials, financing, installation, etc. are all coming from Chinese sources.

Chinese giants undercut prices

Aside from being blocked out of the lion’s share of work in projects, European companies have concerns over the aftershocks of the BRI. China’s national champions have enjoyed a highly protected domestic market for decades, allowing them to scale up with their often-exclusive access to a fifth of the world’s population.

Now, the BRI is serving as a platform for those champions, especially the state-owned ones, to launch themselves into other markets. Through political and diplomatic support, they win contracts without competition, and through economic support from policy and state-owned Chinese banks they gain access to dirt-cheap BRI-related financing.

It would be challenging enough to compete with Chinese firms in third markets due to their economies of scale alone, but the addition of state-aid means that they can drastically undercut prices in projects where they actually face competition. Furthermore, China’s national champions are able to leverage their home-grown standards into developing markets along the BRI, putting the same companies that set those standards in a highly advantageous position.

Add to this the rise of digital goods and services in every industry worldwide. The technologies that will define the next several decades, i.e. Blockchain, 5G, VPN services, etc. are heavily restricted in China. European companies that are able to operate their own digital services globally are not able to do so without the right licences in China, which are rarely awarded to European companies.

A Chinese competitor, on the other hand, faces no such issues of interoperability with their digital products, leaving them with access to every customer on the planet while foreign companies only get the remaining 4/5th of mankind outside of China.

These are all issues that European companies have long faced in China. However, as China Inc. scales up in other markets, the EU and its member states must act.

Europeans need to act

First, the EU needs to review its internal competition policy which is hamstringing European companies that go abroad and compete with unnaturally large Chinese behemoths.

Second, the EU needs to create shields to protect itself from these market distortions and push for reciprocity with China. That means stronger investment screening to keep China’s steroid-ridden national champions from dragging down the EU common market. However, it also necessitates review mechanisms like the International Procurement Instrument to leverage access to Europe’s procurement market to open up China’s. Such reviews should also be considered in areas like digital goods and services to ensure that Europe gives as much access to its own market as China does.

Third, Europe needs to embrace an active role globally. The EU Connectivity plan announced in September 2018 has seen little progress. The EU needs to offer a serious alternative to third markets eager to enhance their own connectivity, lest they be forced to choose the BRI or nothing.

Nobody does connectivity better than the EU. After all, the very goal of the European Project was to remove barriers within EU borders.

The EU must play an active role and repeat its own connectivity miracle into other regions while adjusting its own rules to China Inc. going global.

Should it fail to do so, Europe stands a real risk of steadily being boxed in to the point that it becomes little more than a passive market tacked on at the end of Eurasia.